CHAPTER 3: COMPONENTS OF FISCAL ADMINISTRATION

LESSON 1: BUDGETING
A. Budget and Budgeting in Fiscal Administration:

“The budget should be balanced, the treasury should be refilled, the public debt should
be reduced and the arrogance of public officials should be controlled”

Ross Perot

1. Define and explain the purposes of budgeting, identify the budgeting process and key
budget factors
2. Prepare various types of budgets, explain different budgeting techniques and understand
the difference between top-down and bottom-up budget approaches.
3. Understand why organizations budget, analyze budget analysis reports and identify and
evaluate sources for budget analysis

Understanding Fiscal Administration and Budgeting

Fiscal administration encompasses the management of public finances, including revenue

collection, expenditure allocation, and debt management. It plays a vital role in ensuring the
efficient and effective use of public resources to achieve government objectives. Budgeting is a
core component of fiscal administration, serving as a comprehensive plan that outlines how
public funds will be allocated and spent over a specific period.

Key Concepts in Fiscal Administration and Budgeting

• Revenue: This refers to the income that governments generate through various sources, such
as taxes, fees, and licenses.

• Expenditure: This represents the outlays of public funds on various government programs,
services, and infrastructure.

• Debt Management: This involves managing the level of government borrowing and ensuring
that debt levels remain sustainable.

• Fiscal Policy: Governments utilize fiscal policy, which involves adjusting taxation and spending
levels, to influence economic activity and achieve macroeconomic goals.

Types of Budgeting Models

Several different budgeting models are employed in fiscal administration, each with its
advantages and disadvantages:

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1. Incremental Budgeting

This model is based on the previous year's budget, with adjustments made for inflation,
population growth, and other factors. It is a relatively simple and straightforward approach, but it
can lead to a lack of innovation and a tendency to perpetuate existing programs regardless of
their effectiveness.

2. Zero-Based Budgeting

This model requires each program or activity to be justified from scratch each year, starting with
a "zero" budget. It encourages a more critical evaluation of programs and can lead to greater
efficiency, but it can be time-consuming and resource-intensive.

3. Program Budgeting

This model focuses on allocating funds based on specific programs or activities, rather than
simply by department. It emphasizes the achievement of program goals and outcomes, but it
can be challenging to measure program effectiveness and can lead to complex
interdependencies between programs.

4. Performance-Based Budgeting

This model links funding allocations to the performance of programs and agencies, using
metrics to measure outcomes and efficiency. It encourages accountability and transparency, but
it can be difficult to develop and implement effective performance measures, and it can lead to a
focus on easily quantifiable outcomes at the expense of broader societal goals.

The Role of Fiscal Administration in Different Sectors

Government: Fiscal administration plays a critical role in managing public finances, ensuring
that government services are funded and delivered efficiently. This includes:

• Taxation: Governments collect taxes from individuals and businesses to fund public services.

• Spending: Governments allocate funds to various programs and services, such as education,
healthcare, infrastructure, and defense.

• Debt Management: Governments borrow money to finance deficits and invest in long-term
projects.

Private Sector: Fiscal administration is also crucial for businesses, ensuring financial stability
and profitability. This includes:

• Budgeting: Businesses create budgets to allocate funds to various departments and activities.

• Financial Planning: Businesses develop long-term financial plans to achieve their goals.

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• Investment Decision-Making: Businesses evaluate investment opportunities and allocate
capital to projects that promise the highest returns.

Challenges and Opportunities in Fiscal Administration

Fiscal administration faces numerous challenges, including:

• Economic Volatility: Fluctuations in economic growth, inflation, and interest rates can impact
government revenues and spending.

• Political Pressure: Governments often face pressure from various stakeholders to increase
spending on certain programs or reduce taxes.

• Transparency and Accountability: Ensuring that public finances are managed transparently
and that government officials are held accountable is crucial for public trust.

Despite these challenges, fiscal administration offers opportunities to:

• Improve Public Service Delivery: By allocating funds efficiently and effectively, governments
can enhance the quality and effectiveness of public services.

• Promote Economic Growth: Sound fiscal policies can create a stable and predictable
economic environment that encourages investment and job creation.

• Enhance Social Welfare: Governments can use fiscal tools to address social inequalities and
provide support to vulnerable populations.

Conclusion

Budgeting is an essential element of fiscal administration, playing a crucial role in managing

public finances and ensuring the efficient allocation of resources. By understanding the various
budgeting models and their strengths and weaknesses, governments and businesses can make
informed decisions about how to allocate funds and achieve their objectives. Fiscal
administration faces numerous challenges, but it also offers significant opportunities to improve
public services, promote economic growth, and enhance social welfare.

REVIEW QUESTIONS:

1. What is the primary purpose of budgeting?

2. What are different budgeting models are employed in fiscal administration, each with its
advantages and disadvantages
3. How does the political environment influence the budgeting process, and what are the
potential consequences of these influences?

References:

IvyPanda. (2023, March 22). Public Budgeting Amidst Uncertainty and Instability.

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B. Budget and Budgeting in the Philippine Public Sector

Key Learning Objectives:

1. Understanding the Philippine budget cycle: describe the four main phases of the budget
cycle in the Philippines, explain the roles of key government agencies involved in the
budget process, and identify the key documents involved in the budget process.
2. Explain the concept of fiscal discipline and its importance within the Philippine budget,
discuss the connection between the budget and national development plans and
understand the role of the Development Budget Coordination Committee (DBCC) in
coordinating budget preparation.
3. Analyze the challenges faced by the Philippine government in managing its budget,
evaluate the potential impact of these challenges on the effectiveness of the budget
process and discuss strategies for improving the budget process.

The Philippine public sector budget is an important tool for achieving the country's
economic and social goals. It encompasses the allocation of revenues and borrowed funds to
fund government programs and projects, ensuring efficient resource management while
maintaining a healthy fiscal position. The budgeting process in the Philippines is a complex and
multi-faceted process, involving various government agencies and stakeholders.

Defining Budget and Budgeting

• Budget: A comprehensive financial plan that outlines the government's estimated income and
expenditures for a specific period, typically a fiscal year. It details how the government plans to
spend its resources on various programs and projects, including salaries, infrastructure
development, social services, and debt payments.

• Budgeting: The process of creating and managing the budget. It involves planning, adopting,
and executing financial policies and programs to ensure that the government's resources are
used effectively and efficiently to achieve its objectives.

Key Features of the Philippine Public Sector Budget

• Commitment to Fiscal Discipline: The Philippine government has made notable efforts to
regain fiscal discipline and sustainability, particularly after the economic challenges of the past
decades. This involves controlling spending, reducing budget deficits, and managing debt levels
responsibly.

• National Planning Function: The budget is closely linked to the country's national development
plans, ensuring that resource allocation aligns with the government's overall strategic objectives
for economic growth, social progress, and sustainable development.

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• Development Budget Coordination Committee (DBCC): This committee plays a crucial role in
the budget preparation process, coordinating the efforts of various government agencies
involved in resource allocation and management. The DBCC includes the Department of Budget
and Management (DBM), Department of Finance, National Economic and Development
Authority (NEDA), Bangko Sentral ng Pilipinas, and the Office of the President.

The Budget Cycle in the Philippines

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The budget cycle in the Philippines consists of four main phases:

1. Budget Preparation:

The budget preparation phase begins with the Development Budget Coordinating Committee
(DBCC), a body composed of key government agencies responsible for economic and fiscal
planning. The DBCC determines the overall economic targets, expenditure levels, revenue
projection, and financing plan for the upcoming fiscal year.

Following this, the Department of Budget and Management (DBM) issues a budget call, which
outlines the budget framework, sets economic and fiscal targets, prescribes priority thrusts and
budget levels, and spells out the guidelines and procedures for budget preparation.

Government agencies then prepare their detailed budget estimates, ranking programs, projects,
and activities using the capital budgeting approach. These estimates are submitted to the DBM
for review and approval.

Key Steps:

1. DBCC Determination: ( Development Budget Coordinating Committee (DBCC), a body

composed of key government agencies responsible for economic and fiscal planning) :
The DBCC sets the overall economic and fiscal targets, expenditure levels, and revenue
projections for the upcoming fiscal year.

2. Budget Call: The DBM issues a budget call to all government agencies, outlining budget
parameters, policy guidelines, and procedures for preparing and submitting budget
proposals.

3. Agency Budget Estimates: Government agencies prepare detailed budget estimates,

ranking programs, projects, and activities using the capital budgeting approach.

4. Technical Budget Hearings: Agencies defend their budget proposals before a technical
panel of the DBM, presenting performance indicators and justifying their resource
requests.

5. Executive Review: The DBM reviews agency proposals and makes recommendations to
the President and Cabinet for further refinements and prioritization.

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 6. Consolidation and Validation: The DBM consolidates the recommended agency budgets
into a national expenditure program and a budget of expenditures and sources of
financing (BESF).

7. Submission to Congress: The President submits the proposed budget to Congress for
approval.

The proposed budget consists of three key documents:

1. Budget of Expenditure and Sources of Financing (BESF): This document outlines

the macroeconomic assumptions, public sector context, and breakdown of expenditures and
funding resources.

2. National Expenditure Program (NEP): This document details the proposed

spending for each department and agency by program, activity, or project.

3. President's Budget Message: This document summarizes the budget policy

thrusts and priorities for the year.

2. Budget Legislation/Authorization:

1. House Deliberations: The House of Representatives reviews the proposed budget, hold
hearings on each department or agency. The Appropriations Committee and its
subcommittees scrutinize the details of proposed programs and projects, crafting the
General Appropriations Bill (GAB).

2. Senate Deliberations: The Senate Finance Committee and its subcommittees conduct
their own hearings on the proposed budget and submit amendments to the GAB.

3. Bicameral Conference Committee: A bicameral conference committee composed of

members from both the House and the Senate harmonizes any differences in the
respective GAB versions.

4. Ratification and Enactment: The harmonized GAB is submitted to both Houses for
ratification and then to the President for signature and enactment into law as the GAA.

3. Budget Execution/Implementation:

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The budget execution phase involves the release of funds to agencies and the implementation
of approved programs and projects. The Simplified Fund Release System (SFRS), adopted in
1995, standardizes the release of funds across agencies based on specific policy initiatives.

Key Steps:

1. Fund Release: Funds are released to agencies based on the Agency Budget Matrix
(ABM), which disaggregates programmed appropriations into expenditure categories.

2. Allotment Release Program (ARP): The ARP prioritizes fund releases, serving as the
basis for issuing General Allotment Release Orders (GAROs) or Special Allotment
Release Orders (SAROs) to authorize agencies to incur obligations. Agencies incur
liabilities on behalf of the government, such as hiring staff, paying for utilities, or entering
into contracts for goods and services.

3. Notice of Cash Allocation (NCA): The DBM releases NCAs on a monthly or quarterly
basis, specifying the maximum amount of withdrawal agencies can make from
government banks.

4. Project Implementation/ Disbursement: Agencies utilize the released NCAs following the
"common fund" concept, allowing flexibility in the use of funds while adhering to
authorized allotments.

5. Budget Accountability and Review: The budget accountability phase focuses on

monitoring and evaluating the performance and cost-effectiveness of government
agencies. This involves reviewing actual performance against targets and examining
agency books of accounts to ensure compliance with accounting regulations and
authorized purposes.

4. Budget Accountability and Review: The budget accountability phase focuses on monitoring
and evaluating the performance and cost-effectiveness of government agencies. This involves
reviewing actual performance against targets and examining agency books of accounts to
ensure compliance with accounting regulations and authorized purposes.

Key Steps:

1. Performance and Target Outcomes: Agencies are held accountable for achieving
performance targets and outcomes using available resources.

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 2. Budget Accountability Reports (BARs): Agencies submit monthly and quarterly reports
on their financial and physical performance, detailing how funds were used and
accomplishments achieved.

3. Agency Performance Reviews: The DBM conducts regular reviews of agency

performance, evaluating their financial and physical accomplishments against targets.

4. Audit: The Commission on Audit (COA) audits government financial transactions to

ensure legality, propriety, and accuracy. The COA conducts audits of agency books of
accounts to ensure compliance with accounting regulations and authorized purposes.

The Philippine budget process is a continuous cycle of planning, authorization, execution,

and accountability. This system ensures that government resources are allocated efficiently and
effectively to achieve national development goals. The process emphasizes transparency,
accountability, and citizen participation, with the DBCC, DBM, and Congress playing crucial
roles in ensuring responsible fiscal management.

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Challenges and Future Directions

The Philippine government faces challenges in its budgeting process, including:

• Political Influence: Political pressures can influence budget allocation, potentially leading to
inefficient resource allocation and a focus on short-term gains over long-term sustainability.

• Economic Volatility: Fluctuations in economic growth and global economic shocks can impact
government revenues and spending, requiring adjustments to the budget.

• Transparency and Accountability: Ensuring transparency and accountability in budget

decisions and spending is crucial for public trust and effective governance.

To address these challenges, the Philippine government is working to:

• Enhance Transparency and Citizen Participation: The government is actively promoting

transparency in the budget process and encouraging citizen participation to ensure that the
budget reflects the needs and priorities of the people.

• Strengthen Performance-Based Budgeting: The government is moving towards a more

performance-based approach to budgeting, focusing on achieving specific outcomes and using
metrics to measure program effectiveness.

• Utilize Technology: The government is leveraging technology to improve data management,

analysis, and reporting, enhancing efficiency and transparency in the budgeting process.

The Philippine public sector budget is a vital tool for achieving the country's development goals.
By continuing to address challenges and implement reforms, the government can ensure that its
financial resources are used effectively and efficiently to promote economic growth, social
progress, and sustainable development.

Review Questions:

1. 1. What is the primary role of the Department of Budget and Management (DBM) in the
Philippine budget process?
2. What is the difference between the General Appropriations Bill (GAB) and the General
Appropriations Act (GAA)?
3. What is the Development Budget Coordination Committee (DBCC), and what is its
primary function?
4. What are some key challenges faced by the Philippine government in managing its
budget?
5. What are some strategies being implemented to improve the Philippine budget process?

References:

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 1. Blogging Hands. (2019, July 28). What is budgeting in the Philippine
government? Blogging Hands

2. Hrepreflibrarian. (2013, March 7). The budget process: The Philippine Congress.
Hrepreflibrarian.

3. (N.A.). Budgeting in the Philippines. Scribd.

4. (N.A.). (N.D.). Philippine Government Budgetary Processes. Slideshare.

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C. The Local Government Units Budgeting Process in the Philippines

Key Learning Objectives:

1. Learn the basic structure of a government budget, understand why budgeting is

important.
2. Learn how to perform basic revenue and expenditure analysis, understand the various
methods local governments use to develop a budge and learn techniques for capital
budgeting: This involves understanding infrastructure projects, long-term investments,
and debt
3. Identify strategies for public engagement, develop strategies for effective communication
and presentation of the budget and identify methods to monitor and evaluate budgetary
performance
4. Maintain operational accountability, connect the budget with a central strategy or vision,
ensure that the budget aligns with the municipality's long-term goals and priorities and
leverage technology to enhance budgeting and financial management.

LGU Budget and Budgeting Process in the Philippines

The Local Government Code of 1991 (Republic Act 7160) lays the foundation for LGU
budgeting in the Philippines, emphasizing local autonomy and empowering LGUs to manage
their own finances. This process involves several key stages, from budget preparation to
execution and accountability.

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LGU Revenue Sources

LGUs in the Philippines have diverse revenue sources, including:

● Internal Revenue Allotment (IRA): The largest source of revenue, allocated

based on population and area.

● Local Taxes and Fees: LGUs have the power to levy taxes, fees, and charges on
businesses, real property, and other local activities.

● Shares from National Wealth: LGUs receive a share of national revenue from
mining, fishery, and forestry taxes, as well as from government-owned and controlled
corporations (GOCCs).

● Grants and Subsidies: LGUs may receive grants and subsidies from the national
government, international organizations, and other entities for specific projects and programs.

Budgeting Process Stages

The LGU budgeting process is divided into five phases:

1. Budget Preparation:

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 2. Budget Call: The Local Chief Executive (LCE) issues a budget call outlining objectives,
policy decisions, financing requirements, and prioritized programs, projects, and
activities (PPAs).
3. Budget Proposals: Department heads submit budget proposals to the LCE through the
Local Finance Committee (LFC).
4. Executive Budget: The LCE prepares the executive budget based on revenue estimates,
expenditure proposals, and the approved local development plan.
5. Budget Message: The LCE prepares a budget message summarizing the proposed
budget and its rationale.

2. Budget Authorization:

1. Submission to Sanggunian: The LCE submits the executive budget to the Sanggunian
(local legislative body).
2. Review and Approval: The Sanggunian reviews the budget, holds public hearings, and
enacts an appropriation ordinance to authorize the budget.
3. LCE Approval: The LCE approves or vetoes the appropriation ordinance.
4. Publication: The appropriation ordinance is published to make it effective.

3. Budget Review:

1. DBM Review: The Department of Budget and Management (DBM) reviews the
appropriation ordinance to ensure compliance with national budgetary requirements.

4. Budget Execution:

1. Allotment Release Orders (AROs): The LCE issues AROs to release funds based on the
approved budget.
2. Obligation and Disbursement: Funds are obligated and disbursed for approved programs
and projects.

5. Budget Accountability:

1. Monitoring and Evaluation: The LFC and LCE monitor the implementation of the budget
and evaluate performance against set targets. [3]
2. Accountability Reports: LGU officials are responsible for submitting accountability
reports on receipts, expenditures, and accomplishments.
3. COA Audit: The COA conducts audits to ensure transparency and accountability in LGU
financial transactions.

Key Stakeholders in the Budgeting Process:

• Local Chief Executive (LCE): Initiates the budgeting process, provides policy directions, and
oversees budget implementation.

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• Local Finance Committee (LFC): Assists the LCE in budget preparation and review,
consolidating budget proposals from departments and offices.

• Sanggunian: Reviews, modifies, and approves the budget ordinance or resolution, ensuring
that it aligns with local priorities and complies with laws.

• Heads of Departments and Offices: Prepare budget proposals for their respective
departments, justifying their requests and ensuring efficient resource utilization.

• Accounting Office: Provides financial data, conducts budget analysis, prepares budget
documents, and monitors budget execution.

• Commission on Audit (COA): Audits LGU financial transactions to ensure accountability and
transparency.

Challenges and Best Practices:

The LGU budgeting process faces several challenges, including:

• Limited Fiscal Autonomy: LGUs often have limited revenue sources, making it difficult to fund
essential services and projects.

• Inadequate Capacity and Expertise: Some LGUs may lack the necessary skills and resources
to effectively manage their budgets.

• Political Influence: Political pressures can influence budget allocation, potentially leading to
inefficient resource allocation.

To address these challenges, LGUs can adopt best practices such as:

• Integrated Planning and Budgeting: Aligning the budget with the LGU's development plans to
ensure that resources are allocated strategically.

Transparency and Participation: Promoting public consultations and disseminating budget

information to enhance community engagement.

Capacity Development: Investing in training programs to enhance the financial management

skills of LGU personnel.

Utilization of Technology: Leveraging technology to streamline the budgeting process, improve

data accuracy, and enhance budget monitoring.

Performance-Based Budgeting: Focusing on outcomes and measuring program effectiveness

can improve efficiency and accountability.

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Conclusion:

The LGU budgeting process in the Philippines is a vital element of local governance, directly
impacting the well-being of communities. By understanding the key stages, stakeholders,
challenges, and best practices, LGUs can improve the effectiveness of their budgeting process
and ensure that public funds are used efficiently and equitably for the benefit of their
constituents.

Review Questions:

1. What are some common revenue sources for LGUs in the Philippines?
2. Discuss the LGU budgeting process.
3. What are the challenges faced by the LGU budgeting process and what are the
strategies to address these challenges.

References:

Juson, J. C. (n.d.). The LGU Budget Process

Budget Manual for LGUs.

"Local government budgeting: How to approach it effectively in 2023"

Department of Budget and Management website

E-?

F-?

Thanks!!

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